Forex Flash: Euro-positive news on the horizon – UBS

FXstreet.com (Barcelona) - Friday is slated to serve up a second dose of potentially euro-positive news - a year ago Eurozone banks borrowed heavily from the ECB via two 3-year LTROs, with the understanding that surplus liquidity could be returned after the first year had elapsed. The early-repayment window opens this week for the first time (and will stay open afterwards).

Although the first transactions are not due to settle until Wednesday January 30, banks have already declared their intentions to national central banks, and tomorrow the ECB is due to reveal how much liquidity will be returned when the first transactions settle next week.

According to Research Analyst Gareth Berry at UBS, "Discerning the currency reaction is a tricky proposition given the broad range of effects the two 3y LTROs induced a funding cliff was prevented (as a large number of corporate bonds issued by Eurozone banks were about to mature). Moreover, sovereign bond markets in the periphery were supported by the fresh liquidity - some of which was deployed at auction and ultimately the ECB's balance sheet was significantly inflated. As such, we keep our EURUSD forecasts unchanged at 1.3300 (1m) and 1.3000 (3m)."